Foreign borrowings seen to rise sharply due to COVID-19

MANILA, Philippines — Foreign borrowings by the national government as well as state-run corporations jumped by 32 percent to $9.7 billion last year from $7.4 billion in 2018, and the figure may increase sharply this year as the government spends more  to mitigate the impact of the coronavirus disease 2019 or COVID-19 outbreak, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP said   the national government accounted for 88.6 percent or $8.6 billion of the total public sector borrowings from foreign creditors last year, while government-owned and controlled corporations (GOCCs) cornered the remaining 11.4 percent or $1.1 billion.

Data showed the national government borrowings consisted of four bond issuances amounting to $3.5 billion, seven project loans worth $3.7 billion and four program loans worth $1.4 billion.

“The national government’s foreign borrowings will fund projects on transport connectivity such as roads and railways, water supply, agriculture development, flood management, and education, local governance and social welfare reform programs as well as general financing requirements,” the central bank said.

About 42.5 percent or $3.65 billion of the total amount borrowed by the national government from foreign creditors last year will be used to finance six projects under the Build Build Build program.

The infrastructure flagship projects include the $1.52 billion North-South commuter railway extension, the $1.3 billion Malolos-Clark railway project, the $345.8 million Pasig-Marikina river channel improvement, the $211.2 million New Centennial water source or Kaliwa Dam, the $202 million road network development project in conflict-affected areas in Mindanao, and the $64.6 million Metro Manila bus rapid transit line 1.

The Duterte administration has committed to spend about $9 trillion until 2022 under the program that aims to accelerate infrastructure spending to about seven percent of gross domestic product (GDP) as well as generate robust economic growth and employment.

Furthermore, the BSP said GOCCs borrowed $1.1 billion from foreign lenders to refinance maturing liabilities arising from its debt and obligations from independent power producers and to augment its working capital requirements.

Under the 1987 Constitution, the central bank through the Monetary Board needs to approve all foreign loans to be contracted or guaranteed by government.  Likewise, Letter of Instructions No. 158 issued in January 1974 also requires all foreign borrowing proposals by the national government, government agencies and government financial institutions to be submitted for approval-in-principle by the Monetary Board.

“The BSP’s role in external debt management is to keep external debt service requirements at manageable levels to ensure external debt sustainability,” the central bank said.

The country’s external debt went up by 5.9 percent to $83.62 billion last year from $78.96 billion in 2018. Public sector debt increased by 7.8 percent to $42.8 billion from $39.7 billion with the national government accounting for 84.5 percent or $36 billion while GOCCs cornered 15.5 percent or $6.7 billion.

On the other hand, the external debt of private companies increased by 3.8 percent to $40.8 billion from $39.3 billion for a share of 48.8 percent.

BSP Governor Benjamin Diokno said earlier the country’s key external debt indicators remained at prudent levels.

Diokno said the debt service ratio, which measures the adequacy of the country’s foreign exchange earnings to meet maturing obligations, remained at single-digit level of 6.5 percent, while the external debt ratio - a solvency indicator - slightly increased to nearly 20 percent.

The government borrows heavily from foreign and domestic lenders to finance the country’s budget deficit. The government spends more than what it actually collects.

Finance Secretary Carlos Dominguez said earlier the country’s budget shortfall could balloon to 5.3 percent of GDP instead of 3.2 percent this year as the government is likely to spend more in order to save Filipinos from the COVID-19 pandemic after Malacañang extended the enhanced community quarantine in Luzon for two more weeks or until April 30.